You have money in the bank? You should invest in dividend stocks
Fifteen years ago, interest rates in the banks were in the order of 5%. Forty years ago, they were above 10%. That means that if you had $10,000 sleeping in your bank account, you would have received $1,000 of interest every year.
Unfortunately, the good old times are over and interests on a saving accounts are now extremely low and even negative in some countries, which means that you need to pay to have your money in the bank.
How can you generate a 5% annual return?
Let us say you buy one share ($148) of Apple (now, everyone can buy stocks easily with low or no commissions). You are now a shareholder of Apple, you own a tiny fraction of the company. As a consequence, Apple will share with you a fraction of its revenues. Every year, you will receive $0.88 per share, which is a 0.59% return on investment. Moreover, the value of the stock you bought for $148 may increase over time which further improves your return on investment (see this post for more details).
I am talking about Apple because I like the company, but there are a lot of stocks with dividend yields above 5% — and even more, 8, 9 and 10%!
How safe is it?
Of course, all investments carry risks. With dividend investing, we mostly focus on the regular payements of dividends rather than on the underlying stock values. Therefore, we do not care if the stock goes up or down or if there is a market crash — to some extent. The main risks are that the companies you have invested in bankrupt (if so, you lose money) or that the companies decide to cut their dividends. For example, during the pandemic Walt Disney Co and Ralph Lauren Corp decided to cut their dividends to face the COVID-19 outbreak. In that case, you still own the stock and you can sell it or wait a bit until they pay dividends again (both Disney and Ralph Lauren are now paying dividends again).
For mitigating risk, you should therefore carefully choose the company you invest in. For example, real estate companies will always sell houses, food companies will always sell food, Apple will always sell iPhones, … In my case, all the companies I have invested in have paid dividends without interruption for more than fifteen years, even during the pandemic.
If you want to learn more about dividend investing, here are four great books I strongly recommend:
- How to Retire on Dividends: Earn a Safe 8%, Leave Your Principal Intact : https://amzn.to/3zf4NlL
- Dividend Growth Investing: Get A Steady 8% Per Year Even In A Zero Interest Rate World: Featuring The 13 Best High Yield Stocks, REITs, MLPs And CEFs For Retirement Income : https://amzn.to/3nHpODI
- Dividend Growth Machine: How to Supercharge Your Investment Returns with Dividend Stocks : https://amzn.to/3hHcCuv
- Get Rich with Dividends: A Proven System for Earning Double-Digit Returns (Agora Series) : https://amzn.to/3Ckbvci
Disclaimer : I am not a financial advisor. The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Furthermore, I only recommend products I use myself. This post may contain affiliate links that are at no additional cost to you, I may earn a small commission.
